Official blog of Gurcharan Das. He is the author of India Grows at Night: A Liberal Case for a Strong State (Penguin 2012);The Difficulty of Being Good: On the Subtle Art of Dharma (2009),India Unbound (2000),a novel,A Fine Family (1990),a book of essays The Elephant Paradigm (2002) & an anthology of plays,Three plays (2003). He writes a regular column for the Times of India and 5 Indian language papers and occasional pieces for the Wall Street Journal, Financial Times, and Time magazine.

Monday, March 08, 2010

THE WALL STREET JOURNALOPINION ASIA MARCH 8, 2010, 2:06 P.M. ETEntrepreneurs and EggplantA case study in how India's government is the main obstacle to economic progress.By GURCHARANDASNew Delhi

Risk is built into capitalism because the rewards of investment arrive in the future. Risk usually comes from the unknown responses of customers and competitors in the marketplace. But in India, the greatest uncertainty still emanates from government and its overweening regulators, despite 18 years of economic reform. If anything holds India back from realizing its true potential, it is weak institutions of governance.

Nowhere is this heartbreaking truth clearer than in the tale of Maharashtra Hybrid Seeds Company. Founded in 1964 by BadrinarayanRamulalBarwale (who received the World Food Prize in 1998) Mahyco, as it is known, has done pioneering work in hybrid seeds. Today Monsanto holds a 26% stake in the company. Having produced hybrids of cotton, sorghum, sunflower and wheat, it is currently researching improvements to more than 30 crops.The development of genetically modified eggplant, known locally as BtBrinjal, was the latest in this string of innovations. Mahyco's scientists toiled for years to figure out how to kill the pest, Brinjal Fruit and Shoot Borer, which wipes out 30% to 40% of India's annual crop. Mahyco conducted 25 environmental biosafety studies supervised by independent and government agencies to ensure that its product had the same nutritional value and is compositionally identical to regular eggplant; finally, it did rigorous field trials in collaboration with two Indian agricultural universities.

In October 2009, after nine years of trials, their invention was approved by the government's Genetic Engineering Approval Committee, which stated Mahyco's product is "effective in controlling target pests, safe to the environment, non-toxic as determined by toxicity and animal feeding tests, nonallergenic and has potential to benefit the farmers." Top Indian and international scientists hailed the innovation, hoping that it would open the door for further research and trials on the more popular foods like rice and wheat.

Yet on Feb. 9, Environment and Forests Minister JairamRamesh stopped the seed's introduction. He privileged the concerns of environmental groups, who had opposed BtBrinjal on grounds of potential human and animal health and biodiversity. In placing an indefinite "moratorium" on the product, Mr. Ramesh adopted the precautionary principle, citing the need for more safety data and an absence of any "overriding urgency." He ignored the government's own regulatory process, the committee of distinguished scientists who had approved BtBrinjal after nine years of intensive trials, and he undermined the trust between the citizen and the state.

It is a testimony to our argumentative democracy that the story did not end there. Mr. Ramesh's decision led to a huge outcry among India's scientists and farmers. Last month, Agricultural Minister SharadPawar wrote to the prime minister that biotech innovations that withstood regulatory scrutiny "should be vigorously encouraged." Any hesitation, he wrote, could hamper research in India on transgenic varieties of potato, rice, mustard, tomato, groundnut, chickpea and pigeon pea currently underway. He added: "Absence of clarity on some of these issues could jeopardize R&D not only by the private seed companies but also by public institutions."

In other words, India cannot attract investment if entrepreneurs cannot predict how the government will react. The telecommunications ministry has wavered for years on whether or not to sell 3G spectrum, and how to do it. Equally disheartening is the recent experience of private entrepreneurs in dealing with the railways ministry. Encouraged to invest in freight movement on the promise of a level playing field, they have discovered formidable hurdles placed in their way by the government's monopoly railway company. Similar stories abound in the airline industry, financial services and retail, too.

Entrepreneurs are used to risk—in fact, they seem to thrive on it. What really throws a spanner in the works of capitalism, however, is uncertainty. What's the difference? As the late great economist Frank Knight wrote in "Risk, Uncertainty and Profit," risk can be quantified using statistical analysis, yielding probabilities that guide efficient decision-making. Uncertainty, on the other hand, cannot be measured and therefore presents a true barrier to business. The capricious decisions coming out of Delhi are creating uncertainty.

Indian civilization has long understood the role of government in mitigating risk. The theme of risk even appears as far back as 2,000 years ago in the ancient Indian epic the Mahabharata, where a famous game of dice is the metaphor for the uncertain, vulnerable human life. The epic looks to the ruler and his dharma to bring predictability in the lives of human beings.In the same way, it is the duty of governments to bring predictability into the uncertain lives of investors and business people. Entrepreneurs face more than enough insecurity in the marketplace. If India's government does not ensure a reliable regulatory environment or if allows ministers to interfere in established institutional mechanisms, who will take courageous, long-term risks? Who will invent the seed that sparks a second green revolution? No wonder investors continue to believe that authoritarian China is more investor friendly than democratic India.

Mr. Das, former CEO of Procter & Gamble India, is the author of "The Difficulty of Being Good" (Penguin, 2009) to be published in the U.S. in September by Oxford University Press.

About Me

Gurcharan Das has recently published a new book, India Grows at Night: A liberal case for a strong state (Penguin 2012). He is also general editor for a 15 volume series, The Story of Indian Business (Penguin) of which three volumes have already appeared.
He is the author of The Difficulty of Being Good: On the subtle art of dharma (Penguin 2009) which interrogates the epic, Mahabharata, in order to answer the question, ‘why be good?’ His international bestseller, India Unbound, is a narrative account of India from Independence to the global information age, and has been published in 17 languages and filmed by BBC. He writes regular column for several news papers and periodic guest columns for the Wall Street Journal, Financial Times, Foreign Affairs, and Newsweek. Gurcharan Das graduated with honors from Harvard University in Philosophy, Politics and Sanskrit. He later attended Harvard Business School. He was CEO of Procter & Gamble India and later Managing Director, Procter & Gamble Worldwide (Strategic Planning). In 1995, he took early retirement to become a full time writer.
Visit http://gurcharandas.org for his complete work and profile.